LNT looks to store initiatives after dismal 1Q report

Clifton, NJ — Hammered by weak sales, a war with Iraq and a late Easter — and having paid a $1.3 million severance package to departed president Steven Silverstein — first-quarter profits at Linens 'n Things tumbled by 59.6 percent, to $2.1 million from $5.1 million last year.

Pummeled by bad weather, the CNN effect, and broadly sluggish consumer spending, sales gained just 5.2 percent, despite continued expansion, to $480.5 million from $456.9 million during the same period a year ago. The crucial gauge of same-store sales fell by 3.2 percent.

Speaking to analysts this morning about the results, chairman and ceo Norman Alexrod pointed to four key initiatives adopted in 2002 that the company hopes will improve its performance over the long haul: maintaining target in-stock levels and increasing investment in core basic merchandise; putting more people on the floor to improve service; assorting more merchandise by region; and adding more stores to the nearly year-old inventory ownership program, which gives store managers control over a menu of key merchandise skus.

The company will add 30 to 40 stores per quarter to the ownership program during the second and third quarters. Although the ownership stores overall are performing better then the chain, LNT also added more field level support to train and develop store managers.

"This is clearly a long-term initiative that will take time to fully implement," Axelrod said. "There's still some inconsistency. We're seeing very big increases in some stores and moderate increases in others."

The company's linens business remains weaker than its "things" business, said cfo Bill Giles. However, management believes that expansion of its program to assortment regionally combined with upcoming introductions of new merchandise from Waverly and Nautica will help address the problem.

The average transaction rose in the first quarter after previously trending flat, Gils said. The gain came from more purchases of higher price point items rather than additional units added to the basket.

Providing some relief to the bottom line, the superstore chain bulked up its average gross margin by 140 basis points, or 1.4 percentage points, to 41.4 percent from 39.7 percent a year ago.

But hit by falling sales and the severance package to Silverstein, operating costs climbed sharply, by 270 basis points, or 2.7 percentage points, to 40.4 percent of sales from 37.7 percent the prior year. But even without the $1.3 million severance package, costs would have amounted to 40.1 percent of sales, up from 37.7 percent last year.